Compensation Programs

1Compensation ProgramsChapter 82Learning ObjectivesDescribe the differences between extrinsic and intrinsic rewards as they relate to employee compensation programs.Explain how compensation programs are affected by federal, state, and local laws.3Learning ObjectivesList and describe the most common forms of direct financial compensation.List and describe the most common forms of indirect financial compensation.List and describe some of the most common forms of nonfinancial compensation.4Compensation ManagementCompensation package: The sum total of the money and other valuable items given in exchange for work performed.5Compensation ManagementExtrinsic rewards: Financial, as well as non-financial, compensation granted to a worker by others (usually the employer).Intrinsic rewards: Self-initiated compensation. For example, pride in one’s work, a sense of professional accomplishment, or enjoying being part of a work team.6Compensation Management7Compensation ManagementThe goal of any effective compensation management program should be to attract, motivate, and retain competent employees.Compensation management: The process of administrating an organization’s extrinsic and intrinsic reward system.8Compensation ManagementImportant when developing a compensation system:Categorizing of jobsPay range: The lower and upper limit of hourly wages or salary paid for a specific job. 9Compensation ManagementImportant when developing a compensation system: (cont.)Comparison of employee pay to the local labor marketLocal wage rate: The prevailing pay range for distinct job categories in a specific community or labor market.Salary survey: A comprehensive review of local wage rates and pay ranges paid for one or more individual job categories.10Compensation ManagementImportant when developing a compensation system: (cont.)Management of internal pay equityLinkage of pay to job performanceMerit pay system: A compensation program that links increases in pay to measurable job performance. Under such a system, those workers who perform better receive proportionally larger percentage pay increases.11Compensation ManagementImportant when developing a compensation system: (cont.)Maintenance of open communications12Legal Aspects of Compensation Management Federal LegislationMinimum wage: The least amount of wages that employees covered by the FSLA, state, or local laws may be paid by their employers.13Legal Aspects of Compensation Management State LegislationLocal LegislationLiving wage: The minimum hourly wage necessary for a person to achieve some subjectively defined standard of living. 14Direct Financial CompensationDirect financial compensation for hospitality employees typically consists of: SalariesWagesIncentives and BonusesTips15Direct Financial CompensationSalariesSalary: Pay calculated on a weekly, monthly, or annual basis rather than at an hourly rate.Exempt (employee): An employee who is not subject to the minimum wage or overtime provisions of the Fair Labor Standards (FLSA).Non-exempt (employee): An employee who is subject to the minimum wage or overtime provisions of the Fair Labor Standards (FLSA).16Direct Financial CompensationSalariesTo qualify for the executive employee exemption, all of the following tests must be met:The employee’s primary duty must be managing the operation or managing a customarily recognized department or subdivision of the operation.The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.17Direct Financial CompensationSalariesTo qualify for the executive employee exemption, all of the following tests must be met: (cont.) The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given significant weight.18Direct Financial CompensationWagesHourly wages: Money paid or received for work performed during a one-hour period.Piece work wages: Money paid or received for completing a certain amount (one piece) of work.19Direct Financial CompensationA taxing authority, such as a state government, may view the term wages as including:All remuneration paid for personal service, including salaries, bonuses, and commissions, paid to all workers of all ranks, including officers of a corporationThe cash value of any remuneration paid in any medium other than cashAll tip income20Direct Financial CompensationA taxing authority, such as a state government, may view the term wages as including: (cont.)Monies paid for time lost due to sickness or accidentExpense allowancesDismissal (termination payouts)Money paid to workers for such items as board, lodging, union dues, employee payments to pension or benefit funds, social security tax, and premiums on group insurance policies 21Direct Financial CompensationIncentives and BonusesPerformance-based pay: A compensation system that rewards workers for their on-the-job accomplishments rather than for time spent on the job.Incentive: Motivational plan provided to employees based upon their work efforts.Bonus: Financial reward paid to employees for achieving pre-determined performance goals.22Direct Financial CompensationTipsTip: A gift of money given directly to someone for performing a service or task. Also known as a gratuity.Tip credit: The amount of tips employers are allowed to count (credit) toward the wage payments they make to employees. 23Direct Financial CompensationTipsTip pooling: An arrangement in which service providers share their tips with each other on a predetermined basis.Service charge: An amount added by management to a guest’s bill in exchange for services provided. 24Direct Financial CompensationTipsCalculating Overtime Pay for Tipped Employees:Multiply the prevailing minimum wage rate by 1.5.Compute the allowable tip credit against the standard hourly rate.Subtract the number in step 2 from the result in step 1.25Indirect Financial CompensationThe cost of employee benefits will account for 20 to 40 percent of the total amount their operations actually spend on employee compensation.Benefits (employee): Indirect financial compensation offered to attract and keep employees or to comply with legal mandates.26Indirect Financial CompensationMandatory benefits (employee): Indirect financial compensation which must, by law, be offered to employees. Voluntary benefits (employee): Indirect financial compensation a company chooses, on its own, to offer its workers in an effort to attract and keep the best possible employees.27Indirect Financial CompensationA variety of health programs can be offered:Medical insurance Prescription drug plansDental plansVision care plans28Indirect Financial CompensationAD&D insurance: Short for Accidental Death and Disability; a form of life and income replacement insurance. Payroll deductions: A payment method in which the employer deducts money from an individual employee’s paycheck, and submits it directly to a program ( e.g., insurance, savings, or retirement) in which the employee participates. These deductions might be made from an employee’s pre-tax or after-tax wages.29Indirect Financial CompensationOther Voluntary Benefits:Paid time-offHolidaysVacation DaysSick Pay30Indirect Financial CompensationOther Voluntary Benefits: (cont.)Retirement programs401-K (retirement) Plan: A retirement plan that allows employees in private companies to make contributions of pre-tax dollars to a company pool that is then invested for them in stocks, bonds, or money markets. 31Indirect Financial CompensationOther Voluntary Benefits: (cont.)Employee assistance plans (EAP)Health Care Reimbursement Accounts (HCRA) and Dependent Care Reimbursement Accounts (DCRA)Hospitality specific benefits (e.g. reduced meals prices, reduced hotel room rates) 32Non-Financial Compensation Types of non-financial compensationIncreased participation in decision-making Greater job freedomMore responsibilityFlexible work hoursOpportunities for personal growthDiversity of tasks